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Monday 18 January 2010 | Comment feed
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Comments 41 | Comment on this article
The economic struggle facing Greece caused riots in December 2008“Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario,” said the document, entitled Withdrawal and expulsion from the EU and EMU: some reflections.
The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a “new legal order” that transcends a “largely obsolete concept of sovereignty” and imposes a “permanent limitation” on the states’ rights.
Related Articles Germany contracts 6pc as eurozone bank deposits fall at fastest rate since Depression International Monetary Fund says EU's Eastern European members should join euro ECB dithers as eurozone dives German economy to contract 7pc this year ECB cuts rates to record 1.5pc, mulls radical actionThose who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.
Crucially, he argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).
This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.
ECB chief Jean-Claude Trichet upped the ante, warning that the bank would not bend its collateral rules to support Greek debt. “No state can expect any special treatment,” he said. He might as well daub a death’s cross on the door of Greece’s debt management office.
This euro-brinkmanship must be unnerving for the Hellenic Socialists (PASOK). Last week’s €1.6bn (£1.4bn) auction of Greek debt did not go well. The interest rate on six-month notes rose to 1.38pc, compared to 0.59pc a month ago. The yield on 10-year bonds has touched 6pc, the spreads ballooning to 270 basis points above German Bunds.
Greece cannot afford such a premium for long. The country must raise €54bn this year – front-loaded in the first half. Unless the spreads fall sharply, the deficit cannot be cut from 12.7pc of GDP to 3pc of GDP within three years. As
By Ambrose Evans-Pritchard Published: 5:12PM GMT 17 Jan 2010
Comments 41 | Comment on this article
“Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario,” said the document, entitled Withdrawal and expulsion from the EU and EMU: some reflections.
The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a “new legal order” that transcends a “largely obsolete concept of sovereignty” and imposes a “permanent limitation” on the states’ rights.
Those who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.
Crucially, he argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).
This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.
ECB chief Jean-Claude Trichet upped the ante, warning that the bank would not bend its collateral rules to support Greek debt. “No state can expect any special treatment,” he said. He might as well daub a death’s cross on the door of Greece’s debt management office.
This euro-brinkmanship must be unnerving for the Hellenic Socialists (PASOK). Last week’s €1.6bn (£1.4bn) auction of Greek debt did not go well. The interest rate on six-month notes rose to 1.38pc, compared to 0.59pc a month ago. The yield on 10-year bonds has touched 6pc, the spreads ballooning to 270 basis points above German Bunds.
Greece cannot afford such a premium for long. The country must raise €54bn this year – front-loaded in the first half. Unless the spreads fall sharply, the deficit cannot be cut from 12.7pc of GDP to 3pc of GDP within three years. As Moody’s put it, Greece (and Portugal) faces the risk of “slow death” from rising interest costs.
Stephen Jen from BlueGold Capital said the design flaws of monetary union are becoming clearer. “I don’t believe Euroland will break up: too much political capital has been spent in the past half century for Euroland to allow an outright breakage. However, severe 'stress-fractures’ are quite likely in the years ahead.”
As Portugal, Italy, Ireland, Greece, and Spain (PIIGS) slide into deflation, their “real” interest rates will rise even higher. “It is tantamount to hiking rates in the already weak PIIGS,” he said. This is the crux. ECB policy will become “pro-cyclical”, too tight for the South, too loose for the North.
The City view is that the North-South split may cause trouble, but that there will always be a bail-out to prevent a domino effect. “If a rescue turns out to be necessary, a rescue will be mounted,” said Marco Annunziata from Unicredit.
It comes down to a bet that Berlin will do for Club Med what it did for East Germany: subsidise forever. It is a judgement on whether EMU is the binding coin of sacred solidarity, or just a fixed exchange rate system like others before it.
Politics will decide, and in Greece it is already proving messy as teams of “inspectors” ruffle feathers. The Orthodox LAOS party is not happy that an EU crew dared to demand an accounting from the colonels. “The Ministry of Defence is sacrosanct,” it said.
Greece alone in Western Europe treats the military budget as a state secret. Rating agencies guess it is a ruinous 5pc of GDP. Does the country really need 1,700 battle tanks, 420 combat jets, and eight submarines? To fight NATO ally Turkey? Merely to pose the question is to enter dangerous waters.
Who knows what the IMF surveillance team made of their mission in Athens. The Fund’s formula for boom-bust countries that squander their competitiveness is to retrench AND devalue. But devaluation is ruled out. Greece must take the pain, without the cure.
The policy is conceptually foolish and arguably cynical. It is to bleed a society in order to uphold the ideology of the European Project. Greece’s national debt will be 120pc of GDP this year. S&P says it will reach 138pc by 2012. A fiscal squeeze – without any offsetting monetary or exchange stimulus – will cause tax revenues to collapse. Debt will rise higher on a shrinking economic base.
Even if Greece can cut wages without setting off mass protest, it lacks the open economy and export sector that may yet save Ireland in similar circumstances. Greece is caught in a textbook deflation trap.
Labour minister Andreas Loverdos says unemployment would reach a million this year – or 22pc, equal to 30m in the US. He broadcast the fact with a hint of menace, as if he wanted Europe to squirm. Two can play brinkmanship.
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Comments: 41
Remember Greece joined the Euro at the last minute. Usual late completion/decisions as with the Olympics, this we know and love as greek. THeir fiscal qualifying performance was manipulated to meet the required entry. Hence they were a risk, but the monetary madness over the past yrs allowed this to go on, despite the known risks. There are no laws to prevent a country leaving the Euro only fiscal pain. The ECB learnt this lesson and saw no way can any new countries join, hence the Baltics countries who had a robust growing economy (Baltic TIgers) were Prevented from joining even though (Lithuania) had missed the inflation target by only .75% of the 3% to join. All other targets being met. In the beggininig they would have joined. Therefore the writing is on the wall. At Davos Greece will be discussed and allowed to be cut loose. The others (pi(g)s) may be given some form of life line to dig themselves out. The soft under belly of Euro Land, the Med, was always a risk factor. Germany or France cannot ride to their rescue.....
It took 400 for Greeks to get rid of Muslims in our country. Now the EU and its NWO politician cronies are trying to turn Greece into a dumping site for muslim immigrants and a serf to turkish imperialist aggression. This is not what I had in mind for my country as it entered the EU. And it shall not pass!
Pay no attention anyone - just another of Ambrose' scare stories. He has been predicting the end of EMU since its inception but it still hasn't happened. Boring
The argument for retaining Greece in the Eurozone appear to be political grandiose, and potential domino effect on the rest of the PIIGS. But if Greece is bailed out, what is the impact on the rest of the PIIGS? Not much incentive for Spain, Italy etc. to sort themselves out is there - let the party continue and brussels can take the strain. I dont buy that, watch for the ECB to find a compromise,
Ambrose just loves playing devil's advocate to the Euro. He knows very well that there is no realistic chance of Greece leaving the Euro. Some of the remarks made about Greece would be more appropriate applied to Britain and sterling, Jon Livesey 6.08am 18 Jan. The one thing missing is an authentically Greek point of view. When Ambrose recently predicted gloom and doom for America the Yanks came out posting in their hundreds angry and disillusioned.
I know a little of the Greek way of thinking. They would rather leave the EU than give up their military strength. The Greek, with this rosy country next door, know better than any what a out-of-control muslim country's birth rate will do to future national security. Their military spending is an inspiration for the rest of us, not a laughing matter. anti-sharia
I doubt that Greece will officially default, the EU won't allow that - but a de facto default is on the cards. That will make life very tough for the rest of the PIIGS - particularly Portugal and Ireland. The strain on the Euro will be huge!
This Document: no title, web link or author? Has Mr AEP made this up or has he let himself be used by others And if it is true appart from some initial smugness how does it profit Britain? I dont normally expect dispassioned reasoned and impartial reporting in the Business pages of the Telegraph This is a pity - money is honest but many people around it are not
@ John (10.43pm Jan 17) I laughed outloud. You are so right!
The problem with Greece is of its own making, If Greece is out of the Euro will Greece make the reforms that IT MUST MAKE? Based on the past I would have to say NO! It will continue to muddle through, delfation after deflation If Greece remains in Euro it has no choice but to make reforms, and it will continue to muddle through with the difference that "the Euro in the pocket" of Costas and Maria it will have value. That is the best that Greeks are gonna get. Beach, weather, good food, poor but Euro in your pocket backed by the boring Germans. Now can we get Bundesbank to watch over the "pound on our pocket"....
AEP states:-'Labour minister Andreas Loverdos says unemployment would reach a million this year – or 22pc, equal to 30m in the US...' Your Telegraph colleague Harold Evans states:- 'A detailed study by MB Zuckerman suggests that the real unemployment rate is a staggering 22 per cent. The official figure does not include the million men and women who have given up, it does not describe the demoralisation of the six million who have been out of work for 28 weeks or more, nor the millions who get by with odd jobs...' The 22pc figure is confirmed by John Williams of ShadowStats.com. Both countries are heading for defaltion, but Bernanke is currently being given the big OK to print as many greebacks as he can to create 'mild(!)' inflation and avoid deflation. He may achieve this short term but in the process saddle the country with a possibly unpayable debt mountain. Greece appears to be the front runner at the moment. A mess no matter how you look at it.
If Germany chooses to subsidise Clubmed, then it will become Clubmed itself. Only with lousy weather. Such support would amount to exporting strength and importing weakness.
All I get out of the comments today - as so often - is that readers would prefer to discuss sentiment than the topic at hand. There is a real, hard, concrete issue here. Greece is well on the way to losing its remaining sovereign Bond A rating, after which the ECB will refuse Greek Bonds as collatoral. Greece has a fiscal deficit of something between 12 and 15% - the accounts are in such a mess that no-one really knows for sure. Greece is suffering from very high structural deficits, high unemployment, over-generous social benefits and falling tax revenues. Greece is suffering from a long-term loss of competitiveness vis a vis Germany. In its time in the EU, Greece has proven unable to keep to the disciplines of Euro area membership, and has become something of a byword for corruption in CAP spending. Greece shows no signs whatsoever of being able to correct even one of these problems unaided, or while it is a Euro member. There appear to be two plausible outcomes for Greece. One is to leave the Euro-area and devalue; the other is to obtain some kind of bail-out from other EU members. Leaving the Euro would be politically embarrassing, but would restore Greece's competitiveness - at least to some extent - quite quickly. On the other hand, an ECB bailout would do no more than defer the crisis, and as a stop-gap measure would do nothing about Greece's long-term problems as an EU member. Nor would it be good for the credibility of the ECB, since it would lead to a serious case of moral hazard. I don't know which strategy will be adopted, nor do I have a strong opinion either way, but pretending that the crisis does not exist, or that there are easy answers, is pointless.
The Germans are never going to beat the Greeks, Spanish and Italians into shape. Compared to the Germans, the people of these countries have a totally different outlook to life. The Germans will have to bend to accomodate these nations of slackers or get tough and leave the Euro. At the end of the day, being booted out of the Euro and the ensuing devaluation would assist the growth of these countries, however if the Germans want to keep their Euro intact, then they'll have to pay. Dont knock it, its a win-win situation for us Brits.
You never seem to address a small minor point. How long till all those unemployed youths from Greece or Spain, start migrating to Germany to find a job? They can freely do so as EU citizens. How can German economy handle all that cheap competition in the labour force? How can German economy handle all the checks, that those youths will start sending back to their pensionless parents?
Comments of Jose (is he spanish or portuguese?) at 11.50pm are devoid of any fact and remind me of a wishful thinker sleeping-walking off his apartment balcony. Those who say that 50 billion is nothing clearly haven't learnt the lessons of 2008. One "small mishap" can trigger bigger "mishaps" very quickly. Contagion is potent! Thank you Ambrose for providing your usual factual analysis that so antagonizes the Euro-fascists
Zapatero of Spain, current EU Pres, has already launched the answer to the problems of Greece and his own country .. a proposed EU-wide economic policy. That means control of economies will be taken away from individual Governments, bringing in common tax rates etc. The rich will support the poor, and Germany will rule the roost. Game over.
How long before a sterling crisis forces the pound into the euro? It is far more likely than this eurozone breakup, as I explain on arabianmoney.net today.
Another neutral and objective analysis from Mr. Evans-Pritchard ... Off course Greece will not default and the Euro will note break-up. This monetarian Union will enlarge in the future and will replace the USD. Its inevitable, like it or not.
Wouldn't it be marvellous if we could bring all this claptrap to its just end sooner rather than later? Greece is a second or third rate nation economically speaking while Germany is first rate. The two cannot be brought together in the real economic world, only in the minds of self serving vainglorious politicians. Roll on the day when historians do the analysis of our times and are astonished to find that the people so easily relinquished their sovereign and hard won democratic rights to a nebulous, unaccountable eurocracy. Europeans have sat fat, dumb and happy for so long that we have lost sight of the value of independent rule, embodying that which is sensible for a particular nation, and given it away to a bunch of blatantly self serving low ball politicians, free of any principles other than to be first at the trough. As usual a few undeserving 'leaders' stand to gain a few quid in their lifetime and footnote in history (likely non too complimentary) at the cost of the rest. Now we and our children will pay the price demanded by the shysters who pretend to lead us. The 'great' media having trod the line and the people having acquiesced so easily, we deserve everything we get.
Not a chance of any country being booted out of or voluntarily leaving the EU. The EU is a prison constructed by the bankster elites with the purpose of turning its citizens into serfs. An appropriate bailout will happen irrespective of any tosh to the contrary being published by the EU. There'll have to be riots in the streets and half of Athens on fire first but eventually the bailout will happen. It's either that or the elites centuries old vision of a subjugated, fascist slave world folds ....
A. Cooke 10.42pm 17 Jan. Sorry mate, tried your website but got a 404 NOT FOUND, which makes your presumption even more speculative. If I were you I would believe in Obama and the Euro. In Sterling's hour of need, the enemy of my enemy is my friend. Churchill understood that and so did Thatcher, Gorbachev was one of her closest friends. Circumstance makes for strange bedfellows, which is something which the esteemed AEP, like Lawrence of Arabia would acknowledge.
For Germany the GREEK situation is a nuisance. Whats 50 billion euros to Germany? Chicken-feed. However a meltdown of SPAIN would prove more critical. If Great Britain (with RBS) had been allowed into the euro....then all bets off and the D-MARK would be reestablished immediately. Small basket-cases are manageable. GREECE may yet float back to the surface....shaken and stirred into action.
Can't see why the Greeks don't just get on with repudiating their $400 billion or so of debt and leave the euro. Done it five before since modern Greece started in 1828 and it worked every time. The new drachma would be cheap as chips - great for Greek tourism and agriculture. Greek security depends on Nato not the Eu. That will remain. They will enter a period of economic frugality not so nearly as bad as if they try and play on within the euro. As for the EU, the euro empire has simply overextended itself and this is the result. They could try and retrieve the situation for a while by giving the Greeks money in some obscure deal or other but Ireland, Portugal Italy etc will want the same. I bet they string out the agony though.Unless some Greek politician slice through the unneccessary economic bondage of the euro and just does the obvious
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